Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Different Sources of Finance
Assertion: Retained earnings are an internal source of finance.
Reason: Companies do not use retained earnings for expansion and growth.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer:
Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Solution : The correct answer is (b) Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
The assertion is true. Retained earnings are the accumulated profits of a company that are not distributed as dividends but are kept within the business for various purposes, such as reinvestment, expansion, or paying off debt. They are considered an internal source of finance because they originate from the company's operations.
The reason is not the correct explanation of the assertion. In reality, companies often use retained earnings for expansion, growth, research and development, acquisitions, and other strategic investments. Retained earnings are a critical source of internal financing for a company's growth and development.
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